[written by Barbara Shecter, courtesy of NationalPost.com]

Pedestrians walk on Bay Street in Toronto. A midyear report issued on Monday by ratings agency Fitch says the profitability of Canadian Banks should remain "at sound levels." Brent Lewin/Bloomberg files

Fitch Ratings is adding its voice to those warning that earnings growth for Canadian banks will moderate over the balance of 2012.

Nonetheless, a mid-year report issued Monday by the ratings agency says profitability should remain “at sound levels.”

The six largest Canadian banks reported better than expected earnings for the first half of the year and credit quality “remained favourable by many international comparisons,” Fitch said.

The financial results, along with favourable funding positions and sound capitalization, support the agency’s stable rating outlook for the Canadian banks.

Joining a chorus of other observers, Fitch deemed household debt — driven by mortgage credit — as the main direct threat to the credit risk profiles of Canada’s financial institutions.

“Canadian households have become more vulnerable to adverse shocks given the record level of household debt to personal disposable income ratio (which was 154.3% in the first quarter of 2012),” Fitch said.

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